Categorized | economy, happenings

Thomas Friedman agrees . . .

On December 6, I posted Another Reason to Let the Big Three Go Bankrupt, where I argued that the business and economic model the large car companies are based on may not be suitable to the post-gasoline or post-carbon automotive industry:

In all the discussion about the GM, Ford, and Chrysler bailout, one significant piece of the puzzle has been ignored: where is the industry itself heading? Is the current car economy of giant manufacturers the right business model for a post-gasoline and, later, a post-carbon automobile market? You could argue that the bankruptcy and shrinking of the major manufactures – not just the American car-makers, but many foreign ones as well – is a necessary prelude to innovation rather than its sine qua non.

The article speculates on what the post gasoline automtive industry might look like. The big 3 automakers and the business model they use (centralized, top-down, large manufacturing) may not be appropriate for the innovations that will drive the post-gasoline automotive industry for years or decades to come. Innovations will come fast and furious over the next few years and it’s highly likely that there will be half a dozen or more “types” of cars based on their drive train and the fuel they use. I also point out that no-one is asking this question in the current debate, that is, what should the auto industry look like in the post-gasoline world.

Now, Thomas Friedman in today’s New York Times is the first to take up this perspective:

Do not expect this innovation to come out of Detroit. Remember, in 1908, the Ford Model-T got better mileage — 25 miles per gallon — than many Ford, G.M. and Chrysler models made in 2008. But don’t be surprised when it comes out of somewhere else. It can be done. It will be done. If we miss the chance to win the race for Car 2.0 because we keep mindlessly bailing out Car 1.0, there will be no one to blame more than Detroit’s new shareholders: we the taxpayers.

Okay, I have enough tenuous links with reality to know that Thomas Friedman is not reading this blog and probably never will. But it’s not a mistake that a mind as creative as Friedman’s is arriving at a similar place. There are, however, some very, very important points that Friedman is ignoring. He is, in fact, still stuck on Car 1.0 (he, in fact, has moved on to Car 1.1, not Car 2.0).

Friedman sees the post-gasoline world as a “single operating system” type of world. Just like the current automotive world. Instead of gasoline powered internal combustion cars, he sees us as tooling around in electrically powered DC battery storage cars. That’s it. Car 1.1, not Car 2.0. The consumer model is slightly different — pay by miles rather than per unit of fuel — but the idea is the same. One type of car. One type of fuel. Lots of places to get that one type of fuel. Only they swap batteries rather than dump gasoline in your tank (however, you can still get Beer Nuts and a Pepsi in the Food Mart while your batteries are being replaced).

I fail to see how this could be a threat to the automobile manufacturers. Large car manufacturers should be able to tool up and provide vehicles to fit this model, even if the patent royalty payments go elsewhere, and they have the best distribution model (a network of captive dealerships). In point of fact, the business model he discusses (Better Place) is a bigger threat to big oil because it would make the delivery of electrons to a nationwide electric car fleet easier and more affordable than gasoline.

If . . .

And this is a mighty big if . . .

If the post-gasoline world simply involves trading out the current “operating system,” i.e., oil-derived fuel powered internal combustion engines, with another “operating system,” battery-stored direct current electric drive trains.

If we simply move from gas cars to battery cars, the Detroit business model is more than suitable to drive growth and profits for years and decades. And innovation. Yeah, they’ll miss the ground floor, but they’ll soon be back to the front. If electric cars become the standard. You got one. I got one. Friedman’s got one. On every freeway and parked in every garage.

Here’s where I part company with Friedman: the post-gasoline world threatens to be a chaotic, “multiple operating system” world for many years if not decades. The proper metaphor isn’t the iPod, but Windows, Macintosh, Linux (in its dozens of distributions). Battery storage electric cars. Hydrogen fuel cell electric cars. Hydrogen internal combustion engines (with hydrogen stations producing the fuel using renewable energy). Biodiesel or natural gas with technologically advanced carbon trapping filters. What the hell: fusion. Who knows?

The iPod is not an apt metaphor. Rather it’s the computer: I’m sitting on a laptop right now that has a processor and an architecture that allows me to put either Windows or Linux on the machine. I have a desktop right next to me that, although it is not made by Apple, has Vista and Mac OSX installed on it. On computers, it’s not just that we live in a multiple operating system world, almost any computer you buy has been built to run any operating system.

That’s where car manufacturing has to go. Look at the car in your driveway. Mine’s a Subaru Baja. Imagine now that you can order that car as a battery storage DC electric motor vehicle. Or a biodiesel with carbon trapping technology. Or a hydrogen internal combustion engine. Or a natural gas internal combustion engine with carbon trapping technology. Imagine that the “operating system” is switchable. So when a new innovation comes down the pike, one that we haven’t thought of yet, car manufacturers can easily and quickly plop the thing down into their vehicles as effortlessly as they would any other kind of drive train.

The key to making this happen are manufacturing standards for drive trains. The reason my laptop can run Windows, Mac OSX, or Linux is because the internal architecture follows standards which the developers of those operating systems decided to follow. In the automotive world, drive trains are tied to the vehicle’s design. You can’t put a Honda engine in a Subaru. You can’t take a Prius’s hybrid technology and plop it down into a Fit.

What’s holding up innovation in the auto industry aren’t ocious profit-mad Luddites lining the halls and corridors of Detroit. It’s the sheer cost of developing a new car. Manufacturing it, which involves an enormously complicated supply chain. Getting it to market. Servicing it once it’s out there.

Drive-train neutral vehicles using forward-looking engineering standards — will go a long way to jump starting innovation.

This isn’t an impossible engineering feat and the car manufacturers that start building “drive train neutral” vehicles with clearly defined standards for the drive train and storage (batteries, gas or liquid fuel storage) will be the car manufacturers that survive. This will allow drive train innovation to be done more quickly and more cheaply, because it will no longer be tied into the total engineering of the vehicle. It will allow new technologies to come online much faster. And as Michael Dell said of his company, the cars made by auto manufacturers will be delivery mechanisms for innovations developed elsewhere.

Most importantly of all, large corporations are never the source of industry-driving innovations. Because their number one job is protecting market share, they are, by definition, retrograde. Let’s take Friedman’s example of the iPod. The basic technology, mp3 players, was developed by small business entrepreneurs. Many of the parts of the iPod were innovated and developed outside of Apple. The iTunes application and interface was not initially developed by Apple, but by a small competitor which Apple bought out.

What Apple was able to do, because of its size and its marketing genius, was to put all these innovations together, cut big deals with content producers, and put the whole thing out there as a package.

So the iPod = innovations by start-ups and small businesses + consolidation by a large corporation into a mass market viable package.

That, I believe, is what the post gasoline industry will look like. The most radical, most innovative, and most important move the Big 3 can do over the next few years is to develop a standardized vehicle that is “drive train,” or, if you will, “operating system” independent. They can then invest in start-ups and entrepreneurs who, at the fraction it would cost a major manufacturer, develop alternative drive trains. Because they’re innovating to engineering standards, the product comes to market much faster. By lowering the investment cost, the auto companies can also lower the financial hurdles these investments have to clear. Spending a billion dollars on an innovation requires a financial hurdle of a double digit return. A $20 million dollar stake could be cleared at a lower return. The first, like the Chevrolet Volt, is the all the proverbial eggs in a highly risky basket. The second is a portfolio model towards innovation, hence the lower financial hurdles.

Car 1.1 is simple substitution: electric cars replace gas cars. Car 2.0 is about innovation, entrepreneurship, and constant change. There’s a very clear path to that right now. But I’m afraid that the big car companies are going to fall for Friedman’s Car 1.1 posing as Car 2.0.

Because, Friedman’s Car 2.0 will be so yesterday in a very, very short period of time.

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5 Responses to “Thomas Friedman agrees . . .”

  1. Daisy says:

    Did Gm deserve the bailout? You Ask me I would say NO.. why? When Honda and Toyota were out inventing new cars, GM was busy boasting about its pride and Showing off its hungry hungry Daughter the Hummer

  2. Subaru-Man says:

    Nice, thanks
    Cool article 🙂


  1. […] of the auto industry and the opportunities available to far-sighted entrepreneurs here and here. Here’s the main thrust of the argument: But the current manufacturing structure is best for […]

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